A2nn0ual1 Rep6ort 2016 Annual Report 2016 Annual Report 2016 Annual Report 2016 Annual Report Hemisphere Media Group, Inc. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ፤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 OR អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-35886 Hemisphere Media Group, Inc. (Exact name of registrant as specified in its charter) Delaware 80-0885255 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4000 Ponce de Leon Blvd., Suite 650 Coral Gables, FL 33146 (Address of principal executive offices) (Zip Code) (305) 421-6364 (Registrant’s telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Class A common stock, $0.0001 par value The NASDAQ Stock Market LLC Securities Registered Pursuant to Section 12(g) of the Act: Warrants to purchase Class A common stock, par value $0.0001 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes អ No ፤ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes អ No ፤ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes or No អ. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes or No អ. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ፤ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. Large Accelerated Filer អ Accelerated Filer ፤ Non-accelerated Filer អ Smaller reporting company អ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes or No ፤ The aggregate market value of the Class A common stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2016, was approximately $115,071,747. No market exists for the shares of Class B common stock, which is neither registered under Section 12 of the Act nor subject to Section 15(d) of the Act. The Class B common stock is convertible into Class A common stock on a share-for-share basis at the option of the holder. For the sole purpose of making this calculation, the term ‘‘non-affiliate’’ has been interpreted to exclude directors and executive officers and other affiliates of the registrant and persons affiliated with Hemisphere Media Group, Inc. Exclusion of shares held by any person should not be construed as a conclusion by the registrant, or an admission by any such person, that such person is an ‘‘affiliate’’ of the Company, as defined by applicable securities laws. Class of Stock Shares Outstanding as of March 14, 2017 Class A common stock, par value $0.0001 per share ..................... 21,900,160 shares Class B common stock, par value $0.0001 per share ..................... 20,800,998 shares Documents Incorporated By Reference: The information required by Part III of this Form 10-K, to the extent not set forth herein or by amendment, is incorporated by reference from the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A for the 2017 Annual Meeting of Shareholders. HEMISPHERE MEDIA GROUP, INC. AND SUBSIDIARIES INDEX TO FORM 10-K December 31, 2016 PAGE NUMBER PA RT I Item 1. Business ..................................................... 4 Item 1A. Risk Factors .................................................. 25 Item 1B. Unresolved Staff Comments ....................................... 52 Item 2. Properties .................................................... 52 Item 3. Legal Proceedings .............................................. 52 Item 4. Mine Safety Disclosures .......................................... 52 PA RT I I Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .................................... 53 Item 6. Selected Financial Data .......................................... 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .................................................. 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............... 68 Item 8. Financial Statements and Supplementary Data .......................... 69 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................................................. 69 Item 9A. Controls and Procedures ......................................... 69 Item 9B. Other Information .............................................. 70 PART III Item 10. Directors, Executive Officers and Corporate Governance .................. 71 Item 11. Executive Compensation ......................................... 71 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................................... 71 Item 13. Certain Relationships and Related Transactions and Director Independence .... 71 Item 14. Principal Accountant Fees and Services ............................... 71 PA RT I V Item 15. Exhibits and Financial Statement Schedules ............................ 72 Signatures ............................................................ 77 Index to Consolidated Financial Statements and Schedule(s) ........................ F-1 PART I Unless otherwise indicated or the context requires otherwise, in this disclosure, references to the ‘‘Company,’’ ‘‘Hemisphere,’’ ‘‘registrant,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’ refers to Hemisphere Media Group, Inc., a Delaware corporation and, where applicable, its consolidated subsidiaries; ‘‘Amended Term Loan Facility’’ refers to our Term Loan Facility amended on February 14, 2017 as set forth on Exhibit 10.6 to this Annual Report on Form 10-K; ‘‘Business’’ refers collectively to our consolidated operations; ‘‘Cable Networks’’ refers to our Networks (as defined below) with the exception of WAPA and WAPA2 Deportes; ‘‘Canal Uno’’ refers to a joint venture among us and Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S and NTC Nacional de Television y Comunicaciones S.A. to operate a broadcast television network in Colombia; ‘‘Centroamerica TV’’ refers to HMTV Centroamerica TV, LLC, a Delaware limited liability company; ‘‘Cinelatino’’ refers to Cine Latino, Inc., a Delaware corporation; ‘‘MVS’’ refers to Grupo MVS, S.A. de C.V., a Mexican Sociedad Anonima de Capital Variable (variable capital corporation) and its affiliates, as applicable; ‘‘Distributors’’ refers collectively to satellite systems, telephone companies (‘‘telcos’’), and cable multiple system operators (‘‘MSO’’s), and the MSO’s affiliated regional or individual cable systems. ‘‘Networks’’ refers collectively to WAPA, WAPA2 Deportes, WAPA America, Cinelatino, Pasiones, Centroamerica TV and Television Dominicana; ‘‘Nielsen’’ refers to Nielsen Media Research; ‘‘Pasiones’’ refers collectively to HMTV Pasiones US, LLC, a Delaware limited liability company, and HMTV Pasiones LatAm, LLC, a Delaware limited liability company; ‘‘Television Dominicana’’ refers to HMTV TV Dominicana, LLC, a Delaware limited liability company; ‘‘Term Loan Facility’’ refers to our term loan facility amended on July 31, 2014 as set forth on Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015; ‘‘WAPA’’ refers to Televicentro of Puerto Rico, LLC, a Delaware limited liability company; ‘‘WAPA America’’ refers to WAPA America, Inc., a Delaware corporation; ‘‘WAPA2 Deportes’’ refers to a sports television network in Puerto Rico operated by WAPA; ‘‘WAPA.TV’’ refers to a news and entertainment website in Puerto Rico operated by WAPA. FORWARD-LOOKING STATEMENTS CAUTIONARY STATEMENT FOR PURPOSES OF THE ‘‘SAFE HARBOR’’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Statements in this Annual Report on Form 10-K, including